Minimum tax on discretionary trusts – exposure draft legislation

Minimum tax on discretionary trusts – exposure draft legislation

The Tax Institute welcomes the opportunity to make a submission to the Treasury regarding its consultation on the exposure draft package of legislation on minimum tax on discretionary trusts.

The package of draft legislation released on 3 September 2026 comprises:

• Treasury Laws Amendment Bill 2026: Minimum tax on discretionary trusts (the draft Bill);
• Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 (the draft Imposition Bill);
• accompanying draft explanatory materials – minimum tax, imposition Bill (draft EM);
• Treasury Laws Amendment Bill 2026: Minimum tax on discretionary trusts – roll-over relief (the draft roll-over relief Bill);
• accompanying draft explanatory materials – roll-over relief (roll-over relief draft EM);
• Treasury Laws Amendment Bill 2026: Minimum tax on discretionary trusts – electable regime (the draft electable regime Bill); and
• accompanying draft explanatory materials – electable regime (electable regime draft EM)

In the development of this submission, we have closely consulted with our members, who have specific knowledge, experience and expertise in trust taxation.

The Tax Institute supports the Government's efforts to reform the taxation of trusts and improve the fairness of the tax system. Reform is long overdue in this area. However, we feel it would be better to re-write the tax laws relating to trusts as a whole. There are many legacy issues that impact the taxation of trusts in addition to the Government’s concerns about inappropriate income splitting. Addressing this one issue in isolation risks further complicating an already excessively complex area. This should be an opportunity to re-write and improve the taxation of trusts overall.

Regarding these measures, we are pleased to see that some of the recommendations we made in our submission dated 31 July 2026 (July 2026 submission) on the consultation paper titled ‘Minimum tax on discretionary trusts’ have been reflected in the exposure draft legislation and associated materials. In particular, we welcome the proposed:

• exclusion of distributions to registered charities, deductible gift recipients and certain income tax-exempt entities from the minimum tax base;
• refundability of excess franking credits remaining after the trustee has satisfied its minimum tax liability;
• introduction of a broader and more modernised fixed trust definition intended to ensure that fixed trusts and widely held trust structures are excluded from the regime;
• roll-over relief to facilitate restructuring from discretionary trust structures into alternative entities; and
• an alternative pathway for existing discretionary trusts to avoid the application of the minimum tax without undertaking a full restructure.

However, we continue to have concerns regarding several aspects of the proposed design. While the exposure draft legislation reflects a number of recommendations made in our earlier submission, several significant policy, technical and practical issues remain unresolved. In particular, we are concerned about:

• the continued denial of the minimum tax offset to corporate beneficiaries, which may result in effective double taxation and tax outcomes that exceed the stated 30 per cent policy objective;
• the absence of a comprehensive mechanism to preserve the benefit of trustee-level minimum tax through trust chains to the ultimate taxpayer;
• uncertainty regarding the interaction of the regime with foreign resident beneficiaries, Australia's tax treaties and distributions from foreign trusts;
• the operation of the testamentary trust exclusion, including restrictions on eligible beneficiaries that may adversely affect legitimate estate planning and asset protection arrangements;
• the lack of clarity regarding the scope of the primary production exclusion in relation to common rural ownership and operating structures;
• the interaction of the proposed regime with other tax measures, including Division 7A, capital gains tax provisions and broader trust taxation reforms;
• the significant compliance, restructuring and implementation costs likely to be incurred by affected taxpayers, including the roll-over's restriction to a single transferee entity;
• significant, unresolved design issues in the electable regime, including its interaction with the small business capital gains tax (CGT) concessions, state duties, and its structural similarity to the family trust election (FTE) and family trust distribution tax (FTDT) framework;
• extensive reliance on Ministerial legislative instruments for several threshold eligibility questions, including roll-over continuity for trusts that are not family trusts; and
• the deferral of important administrative, reporting, notification, and collection arrangements to future tranches of legislation, which limits stakeholders' ability to fully assess the regime's practical operation.

We discuss these issues further below and make recommendations to ensure the regime operates in a proportionate, targeted, and administratively workable manner, while remaining consistent with the Government's stated policy objectives.

Consultation timing

The consultation period for this exposure draft legislation package is only 16 calendar days. It is arguably one of the most significant changes to our tax system in decades. Given the significance of the proposed reforms, the extensive range of taxpayers and structures potentially affected, and the highly technical nature of the legislative package, we consider that a longer consultation period would have been appropriate. While we welcome the release of exposure draft legislation and the opportunity to provide further feedback, the limited timeframe constrains stakeholders' ability to undertake detailed analysis, consult affected taxpayers and identify potential unintended consequences. This is particularly relevant given that many concerns raised during the initial consultation process remain unresolved or have only been partially addressed.

We are also concerned that the Government intends to finalise implementation of the minimum tax regime through further tranches of legislation, including administrative and integrity arrangements. While we recognise that substantial reforms may need to be developed progressively, this approach makes it difficult for taxpayers, advisers and other stakeholders to fully understand and assess the operation of the proposed regime as a whole. Stakeholders are effectively being asked to comment on only part of the framework, even as important aspects of the regime remain under development. In our view, meaningful consultation is best achieved when stakeholders have visibility of the complete legislative framework, enabling a comprehensive assessment of the policy's practical operation, compliance burden and interaction with existing tax laws. We therefore encourage Treasury not to introduce the package into Parliament before providing further opportunities for consultation as the remaining elements of the regime are developed.

Our detailed observations and recommendations are contained in Appendix A, organised by reference to each of the three draft Bills in the package, followed by issues that cut across the package as a whole.

We would be pleased to work with the Government to discuss the points raised in our submission further. We can provide the Government with access to a range of tax technical and industry experts who have contributed to our submission.

We look forward to engaging with you further in the next stage of this consultation process.

The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.